Conduent (CNDT) Q2 FY26 earnings call: guidance and Q&A

Inquired about the structural nature of Government segment margin improvements and whether the previous goal of 10% overall adjusted EBITDA margins is still applicable given portfolio changes.

Harsha reaffirmed the goal of achieving mid-to-higher double-digit margins in individual segments, leading to an overall adjusted EBITDA margin greater than 10%. He attributed Government segment improvements to rapid AI implementation (e.g., fraud detection with Verisite) and leadership changes under Anna Server.

“We need to be in the mid- to higher double-digit margins. Then we minus the SG&A, that's the central SG&A, bringing us to a greater than 10% margin. So that goal remains unchanged.”

asked by Michael Kupinski · answered by Harsha Agadi

Asked if AI is expected to become a measurable contributor to revenue growth, beyond cost efficiency.

Harsha explained that AI is primarily used internally for efficiency gains, such as code porting, requirement validation, testing, and quality checks, which accelerate implementation times. This leads to faster revenue accretion and increased accuracy, indirectly contributing to revenue and reducing costs.

“The biggest issue I saw as I walked into Conduent is the speed to implementation. Sometimes when you sign up new business, it was taking 9 months, 10 months, we're compressing the time to go live, which then -- and we're using AI to do that, which then means revenue accretion will be faster, accuracy in terms of our operations increases.”

asked by Michael Kupinski · answered by Harsha Agadi

Followed up on client concentration after the largest commercial client's contract ends, and asked about efforts to improve client accounts.

Harsha stated that the remaining portfolio is reasonably diversified, and they do not foresee similar exposure risks. The focus is on increasing 'service density' with existing clients (currently 1.4 services per client vs. 12-15 available) and exploring geographical expansion into Canada, Western Europe, and Australia to leverage back-office capabilities.

“Our service density to clients is low, and we are intending to increase it. That's one side of it. The other side is we're also going to go beyond the U.S. to increase our geography in where we start selling.”

asked by Gowshihan Sriharan · answered by Harsha Agadi

Inquired if building out the next-generation Medicaid platform would require a CapEx step-up in 2027 or if current CapEx is being deferred.

Giles Goodburn confirmed no significant CapEx step-up is required, as it's part of the normal allocation for technology investments. He expects overall company CapEx to tick down due to the transportation segment divestiture and more prudent capital allocation across the business.

“No significant step-up. That's right. It's just part of the normal course and speed of the CapEx that we've allocated to the business and the continued investments that we're making in what we believe is a market-leading technology stacks in the government space.”

asked by Gowshihan Sriharan · answered by Giles Goodburn

Asked about remaining buckets in the 'fix, sell' strategy after the transportation divestitures.

Harsha indicated that while the transit and tolling sales exceeded targets, there are continuous inbound inquiries for other parts of the business. He stated that if attractive multiples (15-20x EBITDA) are offered, they would consider further sales, emphasizing the significant value within Conduent not yet reflected in the stock price. He also mentioned a detailed strategy review, including AI's role, to be presented at Investor Day.

“If somebody came to me and said, here's 20x EBITDA, 15x EBITDA, I think my CFO is going to press very hard for me to be not wanting to look at the deal. So there are a couple of small pockets of businesses we might look at.”

asked by Gowshihan Sriharan · answered by Harsha Agadi

Asked about the company's comfort levels and target ranges for leverage, specifically the long-term goal.

Giles Goodburn stated that after the current transactions, leverage will be around 2x. The long-term goal is to reach a 'one-time levered range' within the next 18 to 24 months, driven by ongoing transformation activities, cost reductions, top-line growth, and reduced CapEx.

“I'd like to be in the sort of onetime levered range. But we've got work to do to get there, but we're on the right path to addressing that.”

asked by Marc Riddick · answered by Giles Goodburn

Requested more details on the areas targeted for the $100M cost savings program.

Harsha detailed that 60-70% of the savings are expected from headcount reductions, and 30-40% from optimizing the tech stack. He noted that the biggest impact is expected in the Commercial segment, which has lower margins and higher potential. The company aims to be consultant-free by the end of the year.

“I think 60% to 70% is headcount. 30% to 40% is relooking at our tech stack -- so the combination of the 2 is going to give us that of that, we have already identified a little more than half.”

asked by Marc Riddick · answered by Harsha Agadi

Asked about general views, new learnings, or sources of optimism from recent client meetings.

Harsha highlighted a significant shift in client dialogue, with direct engagement with client CEOs who are often unaware of Conduent's full service offerings. This has led to invitations for partnership discussions outside of traditional RFP processes, indicating a strong opportunity to increase service density and collaborate on new solutions, particularly in areas like payment processing for government.

“The second is they're now inviting us to meetings, and this is not an RFP methodology. So they will invite us to a meeting where IS CEO, our Head of Commercial Sales, Kimberly Marshall, our CFO might be present or our Treasurer, including there will be a number of other folks in line management, meeting a bank starting with the CEO as well as a number on the other side.”

asked by Marc Riddick · answered by Harsha Agadi